More Chinese easing as price pressure abates removing PBOC hurdle

In this Asia Focus Video Andrew Robinson, Forex Analyst for Saxo Capital Markets in Singapore, analyses the People’s Bank of China’s decision to lower its reserve requirement ratio, whether it’s a taste of more cuts to come and how much it is a clear signal that the world’s second-largest economy is really slowing after all.

The unexpected People’s Bank of China’s announcement that it will lower its reserve requirement ratio on December 5, representing the first cut in three years, initially surprised markets and started a risk-on sentiment, particularly in equities and incited market hunger for more monetary easing.

As such, reserve requirement ratio cuts rarely come in isolation and more are likely soon, probably as early as next month, confirms Andrew Robinson, FX Analyst, Saxo Capital Markets. He says the timing of this easing has to do with the flow of data of late which has pointed to a slowing in the economy and that it was acknowledgement of this situation. Furthermore it pre-empted the latest purchasing manager index data which confirmed a contraction scenario for the economy.

The focus in the coming days will now shift to inflation data with more declines in the consumer price index and an even greater drop in the purchasing prices index seen. Combined, this confirmation of a softening in price pressure effectively removes a hurdle the People’s Bank of China was facing in terms of the freedom to continue to ease monetary policy.